Can HP Save Itself?

An iconic Silicon Valley company says it’s in the second year of a five-year turnaround plan. But the IT business is moving much faster than that.

March 8, 2013

I met with two top executives from Hewlett-Packard this week and got the impression that the company is buying time before it figures out something big. But I wonder if it can do that before it’s too late.

Things might not necessarily look bleak. After a preposterous number of soap operas at the top of the company over a 12-year span, HP has stabilized under Meg Whitman, who has been CEO since September 2011. HP pulls in $120 billion in annual revenue. It handles crucial IT jobs for huge corporations, organizations, and governments. The company detailed this work to IT analysts in a two-day meeting in Boston this week; the analysts were ostensibly under nondisclosure agreements, but some wrote in tweets from the event that they were impressed by what they heard.

But why is HP’s market capitalization just $41 billion? IBM is worth nearly six times more. One big reason is that it’s not clear how HP will navigate volatile IT markets in the coming years. HP is the world’s leading seller of PCs, but we all know where that market is heading. An outsize portion of the company’s profit still comes from selling ink for printers. And overall, you could be excused for being confused about what HP fundamentally is. In recent years the company bought the smartphone pioneer Palm but then decided to jettison its webOS operating system, and it decided to stop selling PCs only to reverse course and keep the business.

In this week’s meetings, HP executives stressed that the company is focused on huge market opportunities: cloud services, data security, the analysis of “big data,” and mobility. Mobility, in HP’s case, means helping companies outfit employees with smartphones and tablets and routing crucial data to them.

That’s a smart strategy as it goes; HP has traditionally been strong in data-center management software and related hardware and services. But the rest of the list feels iffy because there is a lot of competition. Take data security. When I asked John Hinshaw, executive vice president of technology and operations, and Bill Veghte, HP’s chief operating officer, what makes HP better at security than IBM or anyone else, I got a not-very-convincing answer about how HP has bought best-of-breed security companies and scans more lines of code than just about anyone.

The executives mainly tried to make a virtue of HP’s versatility: they say that HP is not too deeply invested in any one technology, so it can be a trusted integrator of many technologies. How convincing is that? Keep in mind this “trusted partner” role is very much what IBM does, and as I mentioned, IBM is worth six times more to Wall Street.

No, if HP is going to set itself up for long-term sustainability, it’s going to have to invent or develop something special—or at the very least acquire it. Might its next big thing be a novel memory technology known as the memristor, which was born in HP Labs? HP had said (see “Memristor Memory Readied for Production”) that it could go into production in 2013. Now 2014 is being given as a more likely date; HP and its partners are still apparently sorting out who would handle the manufacturing. Or might HP make a dent in the tablet market with its upcoming Slate 7, a $169 device that runs Android? What about the smartphone business, which is rapidly becoming saturated here but has room to grow overseas? HP is wavering: it doesn’t sell phones but is reëvaluating that and might get into the phone business after all next year.

The company says it’s in rebuilding mode. It’s in year two of a five-year turnaround plan. But surely it can’t wait three more years to find something to give it momentum. Its last enormous bet was buying Compaq a decade ago and becoming the world’s top PC seller. Now the PC era is ending. What will HP ride through the next era?

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I’ve been a technology journalist since 2000, reporting from Silicon Valley, New York, and Boston. My positions have included deputy editor and executive editor of MIT Technology Review and technology editor for the Associated Press.